Additional commissioner of police (ACP) A.A. Khan, head of the ATS, attacked the Lokhandwala Complex on 16 November 1991, with a force of around 400 armed policemen. Dreaded gangster Maya Dolas was hiding in the complex. The leading protagonists in the film have slightly different names than their real-life counterparts and the film caption is "based on true rumours." The film was released on 25 May 2007.

The film opens with shots of brooms and dustpans cleaning dried blood and cartridge casings in and around Swati building at the Lokhandwala Complex.[1] TVN reporter Meeta Matu (Diya Mirza) reports that some 3000 rounds of ammunition were discharged by a large police squad at a previously peaceful residential area.

Dhingra asks about the Encounter Squad. Khan explains that he hand-picked 27 of Mumbai police's best enlisted men and officers. He borrowed the concept from the LAPDSWAT (Special Weapons And Tactics) team to help combat crime. The film flashes back to show Khan selecting his men and putting them through intensive physical and mental training to be "fast, efficient and deadly." Dhingra is hardly impressed: He points out that if Khan "shoots to kill" he is no different from the gangsters he seeks to destroy.

Dhingra asks why Khan felt he had do this. Khan explains that following Operation Blue Star in 1984, several Sikh terrorists fled to Mumbai and began establishing a base in the city. They engaged in violence, extortion and other subversive tactics to grow their operations. The film flashes back to show Sub Inspector Mhatre, a very brave officer and disciple of Khan, pursuing and subsequently getting shot down by a group of Sikh terrorists. Khan is deeply frustrated when the Mumbai police, mired in internal bureaucracy and corruption, fail to act. He obtains clearance from the police commissioner Krishnamurthy (played by the real A. A. Khan) and sets out after the militants. Khan asks Meeta Matu (Diya Mirza) to cover the incident so as to deter future terrorists. True to Khan's words, he successfully "encounters" (it indicates summarily gunning down criminals; extrajudicial killings is the term accepted internationally) the terrorists who shot PSI Mhatre. As per Aftab Ahmed Khan the encounter with Khalistani Extremist was more dangerous and tough than Shootout at Lokhandwala.

The film segues into the life of Maya (referring to Mumbai gangster Mahindra Dolas though the film never mentions Dolas specifically; played by Vivek Oberoi). Maya is the second-in-command of the "big boss" in Dubai (a clear reference to Dawood Ibrahim though the film does not mention his name) and runs Dawood's criminal activities in Mumbai. Maya recruits Bhua (referring to Dilip Buwa, played by Tusshar Kapoor) after successfully hatching a plot to eliminate Bhua's old gang led by Ashok Joshi. At this point, Maya and Bhua are at the top of Mumbai's underworld, reporting directly to the big boss in Dubai.

Things heat up when Khan recognises, through his network of spies and informers, that Maya is responsible for several criminal and possibly terrorist activities. Around this time, Maya's ambitions, fuelled by his Aai's (Amrita Singh) insistence, grow to the point where he wishes to assert his independence from Dubai and take over Mumbai himself.

Khan's ATS now focuses on eliminating Maya and Bhua, and begins a dangerous cat-and-mouse game where neither side shows any overt aggression but tries to disable the adversary by tactical manoeuvre. Khan launches "visits" to the criminals' families to try to "persuade" them to counsel the criminals to surrender. In turn, Maya and his men return the "visit" by approaching the cops at social situations. Maya visits Khan at a restaurant where Khan is having dinner with his family. Maya quietly tells Khan: "This is between your men and mine. Leave the families out of it." Khan retorts: "I did this to give you an opportunity to come clean. But now it appears that any resolution hangs off the barrel of a gun."

Maya's rage intensifies when he gets thrown out by prominent city builder Wadhwani (based on real life builder and politician Gopal Rajwani, owner of the building that the movie was set in). Maya had demanded 4 million protection money; Wadhwani claimed to deal directly with Dubai. Maya kidnaps Wadhwani's snivelling, overweight kid. When Wadhwani complains, the big boss asks Maya to cut it out and return the child immediately. Maya quietly informs the boss that he has upped his demands and that he wants to reign supreme in Mumbai.

The film also explores the personal lives of the protagonists. Khan's wife Rohini (Neha Dhupia) is unable to bear his constant neglect of his family life. She files for divorce. Patil's divorce is nearly upon him, too. In the enemy camp, Buwa has shacked up with a bar dancer Tanu (Aarti Chhabria) and is unable to spend any quality time with her. Fellow criminals Phatu (estranged from his parents) and RC (plagued by ghost-like visions of an innocent family he gunned down) have similar troubles.

It all comes to a head in November 1991. The five criminals including Maya and Buwa secure themselves, while holding Wadhwani's kid, in a flat at Swati building in Lokhandwala. Khan is tipped off of the location by an informant. (In Dhingra's questioning, Khan allegedly also received a call from the big boss in Dubai. Khan vehemently denies this.) Khan assembles a large squad of cops and lays siege to the location. He announces over the bullhorn that residents are advised to stay indoors and bolt their windows.

A long and devastating gun battle begins. The criminals launch rocket propelled grenades from their flat and try to escape. But they are overwhelmed by police fire, and all five criminals are eventually slain. The battle lays waste to the building: Film shots show the staircases, hallways and several civilian flats completely pulverised by gunfire. Reporter Meeta Matu covers the action live.

Up to this point, Dhingra has been negative and denigrating of Khan and his efforts with the ATS. He cites press reports and civilian complaints that condemn Khan (and the ATS) of unilateral and unwarranted excessive force in a residential locality. Charges are brought against Khan and the ATS. But when Dhingra rises to defend them as their appointed counsel, he, in a surprising twist, presents an unconventional argument as defence.

Many scenes were shot on actual locations at the Lokhandwala Complex in Mumbai. There was a chase sequence with Sunil Shetty and Arbaaz Khan playing cops, and Ravi Gosain (Aslam Kesai) through Lokhandwala. It would have been difficult to shoot this sequence with the public around. Hidden cameras were used at five places and the two actors ran 200 meters at the real location to can the scene.

The film sparked many controversy regarding the fictionalised portrayal of the incident.[2][3] Sikh groups complained about the wrongful portrayal of Sikhs as extremists.[4] This led to Sikh groups wanting the film banned and "bitterly" opposing the film.[5][6]

Shootout at Lokhandwala got some hard reviews. However, as of 9 June 2007 it had the second highest opening of the year. The film was released with another Bachchan starrer, Cheeni Kum. Shootout at Lokhandwala soared rapidly, and the film was declared as a hit. In the Mumbai circuit, Shootout at Lokhandwala was a superhit.

Director Sanjay Gupta (Director) confirmed a sequel for the film. In early 2012, it was announced that John Abraham, Kangana Ranaut and Sonu Sood were roped in for the lead roles. Abraham features as the lead protagonist gangster Manya Surve; Ranaut appears as her supportive girlfriend Vidhya Joshi and Sood appears as Dawood Ibrahim.The film released on 1 May 2013 draw major praise for the above mentioned characters and strong box office collections.